How to Safeguard a Business During a Divorce

By Rob Jennings J.D.

Although your business may be your only source of income, it can also fall in your spouse's sights during a divorce proceeding. Even if you started your business before marriage, a variety of circumstances during your marriage might place your livelihood in danger during the divorce process. You can protect yourself--and your business partners--by taking certain steps to safeguard your interest.

Your Business as a Marital Asset

If you built value in the business during the marriage or invested marital funds in growing the company, the business could be partly or totally a marital asset. If your spouse invested money or sweat equity--free labor--in your company during your marriage, this could also create a marital interest. Additionally, commingling marital property with business property could make it hard for a court to identify what is marital property versus what is separate property.

Before Marriage

You can safeguard your business before marriage by entering into a prenuptial agreement, or "prenup." In a prenup, intended spouses can agree on how they want to settle their affairs in the event of a later divorce. If you have started, or are in the process of starting, your own business, you may wish to enter into a prenup that specifically protects the business before your wedding date.

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After Marriage

After marriage, you can protect your business by entering into a postnuptial agreement, or "postnup." Couples enter into these contracts for a variety of reasons, but making arrangements related to a business can take all the guesswork out of who will get the business in the event of a divorce. For example, in your postnup, you can specify not only that the business will be your separate property, but that all debts associated with it will be your separate debts.

During the Divorce

If you have neither a prenup nor postnup in place, your business may still remain in your hands even if it constitutes a marital asset in whole or in part. You may be able to offer your spouse other assets in return for a waiver of rights to the business. In addition, your spouse may have another good reason for waiving her interest in the business. For example, she may have an interest in keeping the business viable and intact so that you are able to make any required alimony or child support payments. If your spouse doesn't cooperate, courts can sometimes be persuaded to leave a business intact in order to maximize its value and increase your ability to remain financially solvent.

Separate Property

If the business is separate property--if you can prove that your spouse owns no interest in it whatsoever--it should remain yours throughout the divorce process no matter what happens with the rest of your marital estate. Divorce courts can only divide marital property and things purchased with the proceeds of marital property; if you remained a passive owner throughout the marriage and invested no marital funds or effort in growing the business, your interest might pass through unscathed.

Divorce is never easy, but we can help. Learn More
Can a Spouse Sell a Business Before a Divorce?
 

References

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